Spotlight on Oil

Most of the movement in mortgage markets this week again was guided by changes in oil prices. It was a very light week for major economic data. As a result, mortgage rates climbed a bit to their highest levels in about eight months.

While other recent economic reports suggest that companies are scaling back on adding new employees, this report indicates that they remain reluctant to lay off workers. In short, the economy is in a "low-hire, low-fire" period, magnified by the conflict in the Middle East. Employers are hiring at their lowest rates since 2013 (except for a period early in the pandemic). Lacking confidence in their ability to find a better job, workers are quitting at the lowest rates in about ten years. Increased uncertainty about the duration of higher oil prices makes both employers and workers more hesitant to make major decisions. Bottom line, people wanting to change jobs and new entrants to the labor market such as college graduates are finding fewer opportunities. 

Although the European Central Bank (ECB) held benchmark interest rates unchanged at 2.0% at its meeting last week, recent comments from top officials have warned that rate hikes are a possibility depending on the inflationary impact of higher oil prices. The meeting statement noted that the outlook is "significantly more uncertain" due to the conflict in the Middle East. ECB President Lagarde said this week that even a "not-too-persistent" rise in inflation from the oil shock could lead to a rate hike later in the year. As a result, long-term bond yields in Europe reached their highest levels in about eleven years. 

Looking ahead, attention will remain fixed on the conflict in the Middle East. Investors also will monitor comments from Fed officials about future monetary policy and from government officials about tariffs. For economic reports, JOLTS and Consumer Confidence will come out on Tuesday. The ISM national manufacturing sector index will be released on Wednesday and the services sector index on Friday. The key Employment report also will be released on Friday, and these figures on the number of jobs, the unemployment rate, and wage inflation are always closely watched.